Making Bath Time Cool

The cafeteria at New York City's Hudson Hotel, where an old standard like macaroni and cheese is made with white-truffle oil and sells for $19 a plate, is an appropriate place to chat. Neil Fiske did, after all, write the book on America's newfound obsession with affordable luxury--literally. He co-wrote Trading Up and coined that term to explain why you now pay $4 for a cup of Starbucks or $4,000 for a Viking range even though you are (your tax returns show) solidly middle class. "There's a pretty significant shift in the social paradigm," says Fiske, an unassuming man in frameless glasses. And he knows exactly how to cash in.

When Fiske took over the struggling Bath & Body Works (BBW) retailer 21/2 years ago, he was a career consultant who had never held an operational gig in corporate America. The $2.2 billion company, a division of the Limited Brands, instantly became a real-time laboratory for Fiske's ideas. He set about morphing the shopping-mall staple of down-home goodness and gingham into an upscale yet affordable beauty boutique--a perfect example of a new category of consumer goods that falls somewhere between mass market and prestige. That's why Fiske, a boyish-looking 43-year-old in a dark suit, is at the Hudson Hotel: he has just launched a new line of skin-care products developed by dermatologist to the stars Patricia Wexler. "This," says the soft-spoken Fiske, "represents another step in the transformation of Bath & Body Works from raspberry shower gel to a modern apothecary of beauty and well-being."

Fiske's corporate face-lift fits into a grand plan hatched by Leslie Wexner, the iconic founder and CEO of the Limited Brands, who built the company into a $10 billion retailer largely on the premise that people are willing to pay more for perceived quality. In the 1960s, when middle America bought clothes at department stores, Wexner started a boutiquey chain of shops called the Limited. But now that competitors have flooded the specialty apparel scene and mall fashion has gone commodity, Wexner is changing his game, looking for growth from personal care at Bath & Body Works, from lingerie at Victoria's Secret--which is undergoing aggressive expansion of its own--and from accessories at Henri Bendel. (To understand the reason for this strategy, look no further than the Limited's second-quarter results: ongoing disarray at its Express clothing division dragged down the entire company's earnings.) Ten years ago, 80% of the Limited Brands' revenue came from apparel. Today only a third does.

So Wexner, the man who virtually invented the strategy of trading up, is now entrusting a big chunk of his business to the man who popularized the phrase. The trick, generally speaking, is to reposition things that are essentially commodities (coffee, sandwiches, vodka) by convincing the mass market that it needs a better version (Starbucks, Panera Bread, Grey Goose). Scarcity is stripped from the equation: in the new luxury math, there is a Starbucks on every corner and a Bath & Body Works in every suburban shopping mall.